Defining Accredited Investors
Updated: Jan 8, 2019
We have recently received several inquiries asking us why our platform is currently available only to Accredited Investors. It’s great to see so many of you show interest in our platform and we thank you for the interest! So to address this concern, we have decided to put up a blog where we can learn together what it means to be accredited and why we even have that restriction.
In this post, we explore the answers to these important questions.
What is an Accredited Investor?
In summary, in order to become an accredited investor, you must have a net worth, excluding your private residence, of $1m, or an annual income of more than $200,000 (single) or $300,000 (couple). It is very common in the US for security offers (like shares in a property or a company) to restrict the offer to Accredited Investors. It appears that despite becoming a very popular method used by market participants has not been comprehensively reviewed since being adopted in 1982.
Why Have This Restriction?
The accredited investor definition attempts to identify those persons whose financial sophistication and ability to sustain the risk of loss of investment or ability to fend for themselves render the protections of the Securities Act’s registration process unnecessary.
So what does that mean?
Unfortunately there are scammers out there looking to separate unsophisticated investors from their savings, and the government wants to protect them against this happening. In addition, startups are often very high-risk investment opportunities that are at high risk of failure. The implication is that you’re much more likely to lose your money investing in unlisted (read: unregulated) securities and if you’re going to lose money on high-risk investments, you shouldn’t lose your shirt as well. The downside is that non-accredited investors who are savvy enough to choose investments for themselves become ineligible for these offers.
Why Open Partbnb To Accredited Investors?
We have made the decision to initially open our offer only to Accredited Investors who are US residents. In technical speak, we have decided to operate under the following guidelines provided by the SEC:
Part D of the SEC regulation- Rule 506(c) allows issuers to use general solicitation and general advertising, provided all purchasers are accredited investors and the issuer takes reasonable steps to verify their accredited investor status. Issuers may sell unlimited amounts of securities under Rule 506(c).
This represents a lower upfront regulatory/legal compliance cost for us to be able to make the offer, and for us to build the business. Whilst our ideal starting place is to make our offer available to all investors, practically this would take us much longer, and be much more expensive.
But I’m Not Accredited - What Do I Do?
It seems unfair to restrict access to this fantastic offer to only a certain category of investors. But we do have ambitions to expand our offer to provide for all investors: whether Accredited or not. We don’t have a specific time frame on this, but we believe that this will be possible in the near future. Please do go ahead and sign up to our newsletter by visiting our website to be kept informed (regardless of whether you are or aren’t an Accredited Investor). We will keep you posted on what our latest developments and what will be available for you over time.